Reservoir Media(RSVR) - 2025 Q4 - Annual Report

Part I Item 1. Business Reservoir Media, Inc. is an independent music company focused on music publishing and recorded music, driven by catalog acquisitions and streaming growth - Fiscal Year 2025 Revenue by Segment | Segment | Revenue (USD) | Percentage of Total Revenue | | :--- | :--- | :--- | | Music Publishing | $107.4 million | ~68% | | Recorded Music | $44.3 million | ~28% | - The company's strategy is built on strategic acquisitions and long-term ownership of rights, having deployed approximately $640 million in capital over the last five years[19][26] - Global music industry growth is primarily driven by streaming, which accounted for 69% of global revenues in 2024. The number of global music subscribers grew 10.6% to 752 million[28] - The company is positioned to capitalize on growth in emerging markets, particularly in the MENA region, which was the fastest-growing region for recorded music revenue in 2024 at 22.8%[29][71] - The music publishing and recorded music industries are highly competitive and dominated by three major companies (Sony, Universal, Warner), which account for approximately 60% and 70% of their respective markets[89][90] Item 1A. Risk Factors The company faces significant risks from intense competition, operational challenges, intellectual property threats including AI, and financial vulnerabilities like substantial indebtedness - The company operates in a highly competitive market and its success depends on its ability to sign and retain successful songwriters and recording artists[106] - Management identified material weaknesses in internal control over financial reporting (ICFR) as of March 31, 2025, related to an ineffective control environment, lack of qualified personnel, an ineffective risk assessment process, and improper design of control activities[119][120] - A significant portion of revenues is subject to rate regulation by government entities or collecting societies, which may limit profitability[123] - The development and use of Artificial Intelligence (AI) present new challenges for protecting intellectual property, including unauthorized use of copyrighted works and artist likenesses to train AI models[156][158] - The company has substantial indebtedness under its $450 million Senior Credit Facility, which could require a significant portion of cash flow for debt service and limit financial flexibility[141][142] - As an emerging growth company, Reservoir takes advantage of reduced reporting requirements, which may make its stock less attractive to some investors[180] Item 1B. Unresolved Staff Comments There are no unresolved staff comments - Not applicable[185] Item 1C. Cybersecurity The company maintains a comprehensive cybersecurity program overseen by the Board, with no material incidents reported as of the filing date - The cybersecurity program is led by the Vice President of Technology, acting as CISO, with over 20 years of experience[186] - The Board of Directors, via the Audit Committee, provides oversight for cybersecurity policies and risk assessments[188] - As of the filing date, no cybersecurity incidents have materially affected the company[189] Item 2. Properties The company leases its corporate headquarters in New York City and additional offices globally, which are deemed adequate for current needs - The company's principal executive offices are leased in New York, NY, with additional leased offices in Nashville, Los Angeles, Toronto, London, and Abu Dhabi[191] Item 3. Legal Proceedings The company is subject to ordinary course legal claims, with a royalty dispute settled in October 2023, and no expected material adverse effects - The company is subject to ordinary course legal claims but does not expect them to have a material adverse effect[193] - A royalty dispute that began in 2017 was settled in October 2023, resulting in a write-off of approximately $2.7 million in recoupable legal fees and $620,000 of interest expense in fiscal year 2024[448] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[194] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Reservoir's common stock and warrants trade on Nasdaq, with no dividends planned as the company retains earnings for growth - Common Stock and Warrants are traded on Nasdaq under symbols RSVR and RSVRW[196] - The company has no plans to pay cash dividends in the foreseeable future and intends to retain earnings for growth[198] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 saw 10% revenue growth to $158.7 million, with operating income up 43% and net income significantly higher, supported by strong liquidity and strategic acquisitions Results of Operations Fiscal 2025 revenues grew 10% to $158.7 million, driven by digital and publishing growth, leading to a 43% surge in operating income and 18% Adjusted EBITDA increase - Consolidated Income Statement Summary (in thousands) | Metric | Fiscal 2025 (USD thousands) | Fiscal 2024 (USD thousands) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $158,706 | $144,856 | 10% | | Operating Income | $35,061 | $24,576 | 43% | | Net Income | $7,731 | $837 | NM | | Net Income Attributable to Reservoir | $7,750 | $645 | NM | - Revenue by Segment (in thousands) | Segment | Fiscal 2025 (USD thousands) | Fiscal 2024 (USD thousands) | % Change | | :--- | :--- | :--- | :--- | | Music Publishing | $107,412 | $96,193 | 12% | | Recorded Music | $44,250 | $42,367 | 4% | | Other | $7,043 | $6,296 | 12% | - The increase in Recorded Music revenue was partly due to royalty recoveries for underreported usage and growth in streaming, offset by a decrease in physical revenue after strong De La Soul sales in the prior year[224] - Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Fiscal 2025 (USD thousands) | Fiscal 2024 (USD thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Income | $7,731 | $837 | NM | | EBITDA | $58,054 | $47,246 | 23% | | Adjusted EBITDA | $65,745 | $55,644 | 18% | Liquidity and Capital Resources As of March 31, 2025, the company held $21.4 million in cash, with liquidity supported by operating cash flow and a $450 million Senior Credit Facility, deemed sufficient for future operations - As of March 31, 2025, the company had $21.4 million in cash and cash equivalents[261] - Cash Flow Summary (in thousands) | Activity | Fiscal 2025 (USD thousands) | Fiscal 2024 (USD thousands) | | :--- | :--- | :--- | | Cash from Operating Activities | $45,279 | $36,193 | | Cash used for Investing Activities | $(96,719) | $(50,553) | | Cash from Financing Activities | $54,518 | $17,560 | - The company has a Senior Credit Facility with a $450 million capacity, maturing in December 2027. As of March 31, 2025, $391.8 million was drawn, leaving $58.2 million available[270][403] - The company has two outstanding interest rate swaps with a combined notional amount of $150 million to hedge against interest rate fluctuations on its debt[282] Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for revenue recognition, royalty advance recoverability, acquisition classification, and intangible asset valuation and impairment - Revenue Recognition: Royalties are recognized when usage occurs, based on reports from collecting societies or estimates using historical data if reports are delayed[290] - Royalty Advances: Advances to artists and songwriters are capitalized as assets if they are deemed recoverable from future royalties. Recoverability is assessed based on forecasts of future revenue[293][295] - Acquisitions: The company assesses whether an acquisition is an asset acquisition or a business combination, which determines if transaction costs are capitalized or expensed[296][297] - Intangible Assets: Music catalogs are amortized on a straight-line basis and reviewed for impairment whenever events indicate their carrying value may not be recoverable[298][299] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal years 2025 and 2024, including the independent auditor's report and detailed financial statements - The financial statements were audited by Deloitte & Touche LLP, which issued an unqualified opinion[304][308] - Key Balance Sheet Figures (as of March 31, 2025) | Account | Amount (USD) | | :--- | :--- | | Total Assets | $865,127,010 | | Total Liabilities | $498,927,228 | | Total Shareholders' Equity | $366,199,782 | - Key Income Statement Figures (for Fiscal Year Ended March 31, 2025) | Account | Amount (USD) | | :--- | :--- | | Revenues | $158,705,736 | | Operating Income | $35,061,034 | | Net Income | $7,731,397 | | Diluted EPS | $0.12 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the period - None[455] Item 9A. Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2025, due to an unremediated material weakness in internal control over financial reporting related to third-party royalty processing - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to an unremediated material weakness[457] - During fiscal 2025, the company remediated three previously identified material weaknesses related to: (i) ineffective control environment/segregation of duties, (ii) lack of qualified personnel, and (iii) an ineffective risk assessment process[463][464][465][466] - A material weakness remains related to the improper design of controls over a third-party system for Recorded Music royalty processing, as the service organization does not provide an assurance report (e.g., SOC 1)[466][468][469] Item 9B. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the last quarter of fiscal 2025 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement in the last quarter of fiscal 2025[475] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance will be incorporated by reference from the 2025 Proxy Statement, and a Code of Ethics is available - The required information will be included in the definitive proxy statement to be filed within 120 days after the fiscal year-end[478] - The company has adopted a Code of Ethics, which is available on its investor relations website[479] Item 11. Executive Compensation Executive compensation information will be incorporated by reference from the company's definitive 2025 Proxy Statement - The required information will be included in the definitive proxy statement to be filed within 120 days after the fiscal year-end[480] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management will be incorporated by reference from the company's definitive 2025 Proxy Statement - The required information will be included in the definitive proxy statement to be filed within 120 days after the fiscal year-end[481] Item 13. Certain Relationships and Related Transactions, Director Independence Information on certain relationships, related transactions, and director independence will be incorporated by reference from the company's definitive 2025 Proxy Statement - The required information will be included in the definitive proxy statement to be filed within 120 days after the fiscal year-end[482] Item 14. Principal Accounting Fees and Services Principal accounting fees and services information will be incorporated by reference from the company's definitive 2025 Proxy Statement - The required information will be included in the definitive proxy statement to be filed within 120 days after the fiscal year-end[483] Part IV Item 15. Exhibits and Financial Statement Schedules This section provides an index of all exhibits filed with the Form 10-K, including financial statements and various corporate documents - This section provides an index of all exhibits filed with the 10-K report[487][488] Item 16. Form 10-K Summary No Form 10-K summary is provided - None[494]